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Were Nineteenth‐Century Industrial Workers Permanent Income Savers?
Author(s) -
Bodenhorn Howard
Publication year - 2019
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/soej.12335
Subject(s) - marginal propensity to consume , permanent income hypothesis , economics , consumption (sociology) , labour economics , value (mathematics) , consumption function , demographic economics , production (economics) , monetary economics , macroeconomics , life cycle hypothesis , social science , machine learning , sociology , market liquidity , computer science
Theories of household saving posit that households add to or draw down wealth to equalize the discounted present value of consumption over time. This article examines the extent to which 19th century urban American industrial workers saved and dissaved to smooth consumption in response to unanticipated, plausibly exogenous, shocks to income. Information on the expected and unexpected number of days unemployed is used to construct estimates of transitory income. The data are then used to estimate the marginal propensity to save from transitory income. The results are broadly consistent with Friedman's ([Friedman, Milton, 1957]) permanent income hypothesis in that the marginal propensity to consume from transitory income is about twice that of nontransitory income.